What Does President Trump Mean for Healthcare Stocks?

On stock valuations, a repeal of Obamacare would create some changes to healthcare fair values, but without clarity on the Republican plans it is difficult to make predictions

Damien Conover, CFA 10 November, 2016 | 1:35PM
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The presidential election of Donald Trump combined with the Republicans retaining majorities in Congress leads to greater uncertainty for healthcare stocks. While Trump and the Republicans have been clear on the desire to repeal the Affordable Care Act, also known as Obamacare, there is less clarity on their healthcare policies, except for the focus on reducing regulations. We suspect as plans take shape to repeal Obamacare, the likely outcome will be more of a modification than a complete repeal as several groups have benefited from the legislation.

If the Obamacare were repealed, the outcome will likely mean a lower demand for healthcare combined with less industry fees and profit restrictions. The passage of Obamacare was largely a compromise with industry stakeholders, mandating increased insurance coverage in return for lower costs. Reversing this mandate is largely a net neutral to the healthcare sector, with the drug, biotech, and insurance industries slightly benefiting, hospitals and drug supply chain firms negatively impacted, and the remaining industries less influenced.

On stock valuations, a repeal of Obamacare would create some changes to healthcare fair values, but without clarity on the Republican plans, we have not made any changes to our fair value estimates. The drug industry would likely lose some volume gains as the close to 20 million newly insured patients from Obamacare will likely lose some insurance coverage and spend less, but the mandated costs of Obamacare would likely more than offset the lost revenue.

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Damien Conover, CFA  is an equity analyst and associate director at Morningstar.

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